Tuesday, August 11, 2015

A (Pretty) Complete History of Palantir

I originally published this article at Maus Strategic Consulting on 4/27/2014. To my knowledge it remains the most complete publicly available history of Palantir.

Fairly eccentric near-billionaire CEO Alex Karp

Palantir
Technologies is the darling of the U.S. intelligence community, the
terror of many privacy advocates, and most recently the fascination of
many high-end investors.Despite being
in the spotlight among such groups, much of the information on it is
fragmentary or highly speculative. This history unites those fragments
into a coherent whole, probably the most complete publicly available
history of Palantir ever assembled.
When Palantir spokeswoman Lisa Gordon was reached for official comment
on the history below, she examined it and replied (with characteristic
Palantir casualness) "I don't really have anything to add. Looks pretty
complete."

Though
widely listed as having been founded in 2004, SEC filings set
Palantir’s official incorporation on May 2003 (1) by Peter Thiel
(cofounder of PayPal and investor in numerous Silicon Valley firms), who
said that he intended the Palo Alto, California-based startup as a
“mission oriented company” intending to apply software like PayPal’s
fraud recognition systems “to reduce terrorism while preserving civil
liberties” (2).

In 2004, Thiel bankrolled the creation of a
prototype by PayPal engineer Nathan Gettings and Stanford grad students
Joe Lonsdale and Stephen Cohen. That same year, Thiel hired temporary
(and later permanent) CEO Alex Karp, a former colleague from Stanford
Law School. Karp had been putting his philosophy PhD to unorthodox use
as a money manager through a London-based investment firm he had founded
called the Caedmon Group,[1] (2) (3) and had been helping to raise funds for Thiel’s investment management firm Clarium Capital (3).

Palantir had difficulties raising capital in the U.S., as suggested by
both SEC filings (4) and anecdotes from Karp, (2) (3) but the
intelligence community (and Karp’s European investor connections)
provided a new channel for funding.

According to the
Washingtonian, they consulted many experts to open doors for them in DC,
including former White House National Security Council staffer Alex
Poindexter, who in 2004 introduced them to Richard Perle, ex-chair of
the Defense Policy board. (5)

Even with these experts helping
them navigate the halls of power in DC, there seem to have been a number
of instances of mutual culture shock. Karp says that in his first
meeting with an intelligence agency in 2005 that he was "freaked out" by
security guarding the building with firearms, and he mistakenly asked
one of the officials their name, not knowing that this was against
protocol (6). Some government officials also expressed surprise at the
casual attire of Palantir staff during meetings, such as former head of
the National Counterterrorism Center Michael E Leiter who had said to
himself “There’s Karp with his hair and his outfit—he doesn’t look like
me or the other people that work for me,” before becoming a supporter
and then consultant for Palantir (7). Indeed, Karp says that “the first
hundred meetings or so were fraught with misunderstandings” (8).

Despite these misunderstandings, the CIA became a Palantir customer in
2005 for their intelligence analytics services, (2) and their venture
capital arm In-Q-Tel was publicly listed as having an equity stake in
the company by mid-2006. (9)

Further integrating themselves
into Washington, the company opened an office in 2007 (nicknamed
“Rivendell”) in the D.C. suburb McLean with their first intelligence
alumnus employee David Worn, (6) a former DoD intelligence officer and
engineer for MITRE. (10) It has also sponsored events such as the
monthly Palantir Night Live in DC to bring together many speakers and DC
socialites together. (11) It has also been active in formal political
lobbying, recruiting former senators John Braux and Trent Lott, (5) with
its lobbying expenditures increasing steadily from 2010 to 2013 when
its total annual investment exceeded $1.1 million[2] (12).

Palantir’s government contract roster steadily grew, Karp says largely
via word of mouth (5) (8), asserting that the company “saw massive
adoption without a sales force” (8). Though most well-known for its
intelligence and defense clients such as the CIA (2) (6) (13),
Department of Defense (6) (14), NSA (2), and FBI (2) (3) (6) (13),
Palantir has also served other types of government agencies, such as the
Recovery Accountability and Transparency Board (15), CDC (16) (17), FDA
(17) and, more recently, the SEC (18).

[1]
A 2009 Wall Street Journal article places Karp’s involvement in the
company as early as 2003. The same article also implies that Karp had
returned to the U.S. from Europe in 2000. (6)

[2]
To put this number into perspective, in 2013 IBM spent $6 million in
lobbying (57) Raytheon spent over $7.5 million, (58) Lockheed Martin
spent nearly $14.5 million, (60) and Boeing spent just over
$15million. (59)

In 2009 Tim Drake, general manager for the 20-year old software defense contractor I2 Inc.[1]
derided his new competitor Palantir as “the new sexy thing,” saying
that Palantir won't be able to make lasting inroads in a government
market that prizes the stability of established companies.” (6) This
prediction would seem to be inaccurate in hindsight, considering that an
August 2013 Forbes article cited interviews with Condoleezza Rice,
David Petraeus and George Tenet to characterize them as a “National
Security Darling”, (19) and their advocates in congress such as
California Representative Duncan Hunter (20).
This is not to say that that they have been unopposed. Controversy
erupted within the U.S. military between implementation of Palantir’s
software and the continued use of Distributed Common Ground System
(DCGS-A) by the U.S. Army, in which a 2010 Joint Urgent Operating
Statement praising Palantir was accused of having been “clearly
ghost-written by a Palantir engineer,” with senior officials in Army
Operational Test Command demanding that the endorsement be removed from
the document prior to distribution. (21) DCGS-A supporters argue that
their system is more versatile, (14) more interoperable with other
systems, (20) and have accused Palantir’s supporters of being Palantir
stooges. (21) (22) Palantir supporters have countered that their systems
are easier to use, more reliable, and faster accuse DCGSA-A supporters
of being either out of touch with the needs on the ground or in bed with
the many major firms with a vested interest in the software such as IBM
(via i2), Northrop Grumman, Lockheed Martin, and General Dynamics (20).
This is not the only scuffle involving both Palantir and i2. i2 filed a
suit in August 2010 alleging that a Palantir employee Shyam Sankar
fraudulently used a shell company SRS Enterprises to license i2’s
software in order to steal its trade secrets from 2006 to 2010. (23) In
January of 2011 the two companies issued a joint statement that they had
settled the agreement "to the mutual satisfaction of all the parties,"
vowing that neither side would make any future public statement on the
subject (24) (25).
Another controversy arose in 2011, when hacked e-mails from HP Gary
revealed a presentation with Palantir’s logo about a proposal to Bank of
America (26) (27) (28) for how Palantir, HB Gary Federal, and Berico
Technologies could collaborate to “combat the WikiLeaks threat
effectively” (29). When the issue emerged, Karp quickly released a
statement saying that he had directed the company to sever all ties to
HB Gary, stating “The right to free speech and the right to privacy are
critical to a flourishing democracy. From its inception, Palantir
Technologies has supported these ideals and demonstrated a commitment to
building software that protects privacy and civil liberties.
Furthermore, personally and on behalf of the entire company, I want to
publicly apologize to progressive organizations in general, and Mr.
Greenwald in particular, for any involvement that we may have had in
these matters” (27) (28) .
Karp would later say that he had been unaware of the plan, insisting
that the company’s flat structure encourages employees to act like
entrepreneurs, not requiring approval for every action by their
superiors (5). One could also note that the project was proposed by a
team operating out of the DC office, rather than the Palo Alto
headquarters (5), perhaps limiting oversight. In response to the
incident, Karp also said that he hired a law firm (Boies, Schiller &
Flexner (5)) to investigate the company’s role in the incident (5) (30)
and placed the lead engineer Matthew Steckman for the project on
leave (2). Palantir later rehired Steckman (2) (5), but they also
created an internal ethics hotline that engineers can use to anonymously
report to Palantir’s directors about work that they consider unethical
(2).
There was also some concern that the Edward Snowden revelations might
taint the general public’s first impression of the company (2),
particularly when some commentators conflated the NSA’s “PRISM”
surveillance program with Palantir’s “Prism” software platform, to which
Palantir responded in an official statement insisting that the two
programs were unrelated (31). Based on cursory analysis of Google search
trends over time and query correlations (i.e. how often two topics or
phrases are searched together), it would appear that the public at large
does not strongly associate Palantir in particular with the incidents.

Indeed, though there was a moderate increase in Palantir searches in
June 2013, when the story broke, but it was minor compared to spikes
correlated with the leaks of the HBGary e-mails or business-focused
coverage of Palantir, such as the September 2009 Wall Street Journal
article covering them or announcements of the progress of its latest
investment round. However, even if the scandal does not harm Palantir’s
public image directly, the effects are still playing themselves out and
the evolution of regulations for government intelligence contractors
and the use of public data may impact Palantir’s revenues in the long
term.

Mitigating this risk, Palantir has diversified beyond government
contracts. Palantir does not solely serve the government, though. Their
clients at the New York Police Department recommended them to their
first private-sector client JP Morgan Chase (2), with whom they signed a
contract in December 2009 for $5-20 million (30) to help them detect
fraud and as of late 2011 they also intended to use it to improve
their marketing tailoring (7). Other clients include the U.S. Chamber
of Commerce (5) and SAC Capital Advisors (32). Palantir has also made
overtures to pharmaceutical companies (33), insurance agencies (34),
healthcare providers (35), legal professionals (36), and commercial
lenders (37), as well as providing cybersecurity and intelligence (3).
It has been widely reported that less than 40% of Palantir’s 2013
revenue was derived from government clients, though this figure seems to
be traceable solely back to the estimate of an anonymous TechCrunch
source (38), so its reliability is unverified.

Palantir has not restricted itself to the U.S either.
International work seemingly started as early as 2008, based on a Quora
posting by Shannon Scott, who lists himself as working as the
Engineering Lead in their Australia office and Palantir’s first non-US
employee (39), which is consistent with the dates listed on his LinkedIn
page (40). Perhaps the earliest known specific international project
was in revealed in 2010 when a Canadian security firm used their
software to crack the cyber-espionage ring known as the Shadow Network
(3), a China-based group that had infiltrated the Indian Defense
Ministry (41). Today, the company has offices around the world.

The firm’s income is a matter of speculation. Analysts estimated
that its 2010 revenue was between $25-50 million, though a 2011 Forbes
article quoted a “highly reputable” unnamed source as saying that it was
“‘significantly north of $80 million’” (30). A 2012 Washingtonian
article references estimates for 2011 revenues of over $250 million, but
does not name its source (5). An August 2013 Forbes article referenced
other Forbes estimates that 2012 revenues were less than $300 million,
but that projected total 2013 revenues would be over $450 million (2).
Even with $450 million in revenue, however, the company was reportedly
not profitable in 2013 (42).
Growth like this has fueled excitement amongst investors. After
financing through steadily growing investment rounds from mid-2006 to
mid-2012, the company launched a substantially larger round of
investment in September 2013 to February 2014, garnering $586.8 million.
All of these deals were primarily brokered by Morgan Stanley, with the
single exception of a single investment of $57.5m in late 2013 by an
undisclosed party. (43)

Chart describes the amount of
capital raised by Palantir and the estimated number of investors
involved during the indicated period.

Table of distinct Palantir
financing events. Caveat: In some cases, this table may underestimate
the number of investors if investors from prior SEC filings in the same
series increased their investment during the course of the same series.

Its valuation similarly ballooned, from $735 million in April-May
2011 (44) to (according to unidentified TechCrunch sources) $2.5
billion in August-September (45). Then in 2013 it leapt from $6
billion in September to $9 billion by November-December (13).

Despite the market potential, the founders seem reluctant for an
IPO. In August 2013 Karp told Forbes that an IPO would render “running
a company like ours very difficult” (46). Even after the success of
the latest funding round an unnamed internal source stated to CNBC in
March 2014 “we have no plans to go public anytime soon” (47). One
could certainly see how going public could bring the company a host of
complications. Firstly, regulations might require that transactions
with their clients be more subject to scrutiny—which some of the
intelligence and defense agencies might not appreciate. Public investors
might also see little immediate profit in Palantir’s more
philanthropic work [see below]. Karp has also been quoted as saying
that “The minute companies go public, they are less competitive. ...
You need a lot of creative, wacky people that maybe Wall Street won't
understand” (48).

The sinister inner-workings of Palantir's Canberra office.

One can certainly see this philosophy permissive of creativity and
wackiness at work in Palantir. Even in the face of its ties to high
finance and the more secretive echelons of governments around the world,
Palantir seems determined to maintain its casual, nerdy culture. The
company itself is named after seeing stones[1]
from the Lord of the Rings mythos, and each of its offices are
similarly named after locations from the series (with the exception of
the NYC office named after Gotham from DC comics (2).) Likewise, its two
primary analytic software platforms, Palantir Gotham and Palantir
Metropolis are named after cities from the DC comic universe (the
stomping grounds of Batman and Superman respectively.) But the casual,
fun-loving atmosphere would seem to extend beyond the nominal. For
example, in its Palo Alto HQ one of the conference rooms has been turned
into a ball pit and dogs are allowed in the office (2). The engineers
also apparently design T-shirts with cartoon characters for each of
their new software versions. As of late 2011, they had run out of Care
Bears and moved on to My Little Ponies (7).
This is hardly to say that they don’t take their work seriously.
Palantir’s Glassdoor reviews consistently report long work hours (47)
for a salary capped company-wide at $127,000—low by Silicon Valley
standards (3). Karp says that one of his investors went so far as to ask
“Is this a company or a cult?”, but he asserts that “To make something
work, it cannot be about the money. I would like to believe we have
built a culture that is about a higher purpose that takes the form of a
company. I think the deep character anomalies of the company are the
reasons why the numbers are so strong” (7). This mission focus leading
to profits might seem counter-intuitive on the surface for a company
that Karp says walks away from as much as 20% of possible revenue for
ethical reasons (2) and that has “lots of clients where we get zero
money” (48). He seems to feel that the mission focus makes up for it by
allowing them to hire top-tier talent and motivating them: “It's
basically very simple. ... We tell people you can help save the world”
(48). Certainly, the company is proud of its more non-profit work fighting human trafficking (49), disaster relief[2]
(50), averting human rights abuses (51), improving global food
security (52), and other efforts. The “higher purpose” may be even
larger than these causes, though, as Karp referred to his early work
with Palantir as “building the most important company in the world” (2).
So what is that
“higher purpose”? How does the company intend to “help save the world”?
The company website is vague on the matter, saying that they are
“working for the common good”, “making the world a better place”, and
“help[ing] the world’s largest organizations solve their most
challenging problems”, and despite the lack of specificity it even
insists that “This mission is what makes the opportunity to work at
Palantir unique.” A
cynical interpretation might be that it is little more than a means to
motivate its staff and help its PR by portraying itself as after more
than simple profit, but let us consider the possibility that there is at
least some substance to it. Perhaps Thiel’s original stated goal to “to
reduce terrorism while preserving civil liberties” has been extended to
providing the other benefits of large-scale data analytics while
minding privacy. He has argued that providing cutting edge technology,
like Palantir’s, to the government with safeguards for accountability is
critical to preventing another 9/11, which “opened the doors to all
sorts of crazy abuses and draconian policies” (7). Karp has certainly
expressed a commitment to privacy, stating “I didn’t sign up for the
government to know when I smoke a joint or have an affair” and “We have
to find places that we protect away from government so that we can all
be the unique and interesting and, in my case, somewhat deviant people
we’d like to be” (2).
Then it would seem that Palantir’s intent is to stand upon the edge
of a knife: providing the power to see the world, without becoming
corrupted by that power.[1] Basically they’re like crystal balls, but don’t let a hardcore Tolkien fan hear you sum it up like that

[2] Earning an endorsement from Bill Clinton himself for their work on the issue (59)